Do the Working Poor Make Too Much Money?

This week, the Globe’s resident conservative curmudgeon Jeff Jacoby let it fly with a piece of misleading sophistry about the evils of the federal minimum wage law. Apparently the right wing strongly believes that, as things stand now, there is simply not enough inequality in this country and the poor currently have too much money. Jacoby’s piece was so jaw droppingly dumb that it deserves a response. In a word: Baloney. But if you would like a more nuanced and detailed argument, read on.

In the piece, titled “Minimum wage laws are costly for the unemployed,” Jacoby has his knickers in a twist because there have been suggestions on both Capitol Hill and Beacon Hill that the minimum wage should be increased. He puts forward the standard conservative argument that economists say the minimum wage laws actually decrease employment and hurt the very people they were intended to help. And that “minimum-wage hikes are … devastating to those at the bottom of the economic ladder.” But that isn’t the truth.

Recent research has found just the opposite of what Jacoby writes. One frequently cited study of recent minimum wage increases, co-authored by Alan B. Kruger, one of the most highly regarded economists in the country, concluded that there is “no indication that the rise in the minimum wage reduced employment.” In the real world, a modest increase in the minimum wage apparently can produce more consumer spending, lead to less job turnover, and spur modest job growth.

Professor Arindrajit Dube of UMass Amherst is another economist who has done extensive research in the real world, including a study that analyzed “employment trends for several categories of low-wage workers over a 16-year period in all counties sharing a common border with a county in another state where minimum wage increases occurred.” I thought he might be a better person to ask about the subject than Jacoby. So, I asked him what the economy might look like if there were no minimum wage laws.

“… you would see certain workers — who have a difficult time — stuck with wages that pay substantially below their productivity and greater deprivation among those who are most exploitable,” Dube said. He was too much of a gentleman to say it the way I might put it: “There would be a race to the bottom for wages, and poor people would really get screwed.”

Jacoby tries to suggest in his piece that the minimum wage mostly affects teenagers. But that’s not true. According to actual data from the Bureau of Labor Statistics, minimum wage workers tend to be young, but about 75 percent of those who work for minimum wage are 20 or older. And according to Dube, your typical minimum wage worker is an adult female, who will be stuck in that job for some time.

Jacoby argues that if you increase the price of labor by increasing the minimum wage, employers will just hire fewer people. But according to UMass professor of Economics Nancy Folbre,a recipient of one of those MacArthur genius grants, it depends on how much of an increase you are talking about.

“If you doubled the minimum wage — sure, that would probably generate some unemployment,” Folbre said in a phone interview. But as she pointed out, nobody is talking about doing anything remotely like that.

Conservatives like Jacoby complain bitterly about the “floor” that the minimum wage provides to help the working poor, even though that “floor” has been sagging rather badly. In a piece for the New York Times back in 2010, Folbre wrote:

“Once adjusted for inflation, the federal minimum wage in the United States today is lower than it was in 1967.

Wage earners seem increasingly unable to capture any of the gains from technological change and productivity growth. Whatever policies we cross swords over, we should count low-wage workers among the walking wounded.”

Jacoby’s piece also seems to suggest that there’s an overwhelming consensus among economists about the pernicious effect that increasing wages has on the poor. But that’s not true, either. There’s a large body of economic thought for just the opposite. When Congress was considering an increase in the minimum wage upward from a cushy $5.15 an hour back in 2006, a statement supporting an increase was signed by:

“Over 650 economists, including 5 Nobel prize winners and 6 past presidents of the American Economic Association, [who] believe that increasing federal and state minimum wages, with annual cost-of-living adjustments for inflation, ‘can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed.’”

And finally, Jacoby begins his whole jeremiad by referencing a history text written by a fellow libertarian that suggests that it was the creation of a national minimum wage in 1938 that threw some 50,000 African Americans out of work. As one critical review of the book pointed out, the author:

“… does not demonstrate that the invisible hand of the free market would have treated them [the African Americans] any differently. One cannot ignore that the African American community had the “Invisible Empire” to fear all across America in the first half of the twentieth century.”

In other words, maybe it’s just possible that the economic hardships faced by African Americans in 1938 had more to do with the pervasive, irrational racial hatred of the era, the Jim Crow laws, the anti-miscegenation laws, the poll tax laws, and efforts to keep blacks out of unions. And maybe you should factor in to all that the recession of 1937-38, which caused the U.S. unemployment rate to jump to 19 percent. Maybe that had a little something to do with the job losses among African Americans in 1938. Maybe it wasn’t the fault of the Fair Labor Standards law, the one that gave the working poor — including African Americans — a whopping minimum wage of 25 cents an hour for their labor.

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MJ

“Jacoby’s piece was so jaw droppingly dumb”

That goes without saying. Can the BG not find ONE intelligent conservative? They do exist. It would be helpful to the dialogue and Jacoby is all heat & no light. It’s sad.

Barry

Dear MJ,
I am sorry to say – I have to agree with you 100%. There are certainly interesting and fact based arguments that conservatives can make about all kinds of policy issues. But for Jacoby – and the author he quotes – to suggest that the 50,000 African American jobs that were lost in 1938 was due to the Minimum Wage Law – is flat out dishonest.

I was just reading more about what they sometimes call the Recession within the Depression. In 1938 – Real GDP fell 11% and industrial production fell 32%. That is why jobs disappeared for African Americans – not – as Jacoby suggests – because of the Fair Labor Standards Law.